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Etihad Nears Deal for a Stake in Alitalia Etihad Nears Deal for a Stake in Alitalia
(3 months later)
PARIS — After more than five months of negotiations, Etihad Airways of Abu Dhabi confirmed on Sunday that it was nearing an agreement that could lead to a sizable investment in Alitalia. PARIS — After more than five months of negotiations, Etihad Airways of Abu Dhabi confirmed on Sunday that it was nearing an agreement that could lead to a sizable investment in Alitalia.
In a joint statement, the airlines said Etihad would formally submit a letter to Alitalia’s board in the coming days detailing the conditions of a nonbinding offer for a stake of up to 49 percent of the money-losing Italian airline, which received a 500 million euro, or $682 million, government-led bailout late last year.In a joint statement, the airlines said Etihad would formally submit a letter to Alitalia’s board in the coming days detailing the conditions of a nonbinding offer for a stake of up to 49 percent of the money-losing Italian airline, which received a 500 million euro, or $682 million, government-led bailout late last year.
“We are delighted to be able to move forward with this process and look forward to the successful conclusion of the proposed transaction with Alitalia,” said Etihad’s chief executive, James Hogan.“We are delighted to be able to move forward with this process and look forward to the successful conclusion of the proposed transaction with Alitalia,” said Etihad’s chief executive, James Hogan.
Neither airline would discuss the terms of Etihad’s planned offer or comment on recent Italian media reports about the deal. Those reports have suggested that Etihad is prepared to pay as much as €560 million for the stake, which under the European Union’s rules on airline ownership must be capped at 49 percent.Neither airline would discuss the terms of Etihad’s planned offer or comment on recent Italian media reports about the deal. Those reports have suggested that Etihad is prepared to pay as much as €560 million for the stake, which under the European Union’s rules on airline ownership must be capped at 49 percent.
According to the reports, Etihad has asked a consortium of banks led by Intesa Sanpaolo and UniCredit, which already own substantial stakes in the airline, to write down up to €565 million of the airline’s more than €800 million in outstanding debt. It also intends to cut as many as 3,000 jobs from Alitalia’s work force of about 14,000.According to the reports, Etihad has asked a consortium of banks led by Intesa Sanpaolo and UniCredit, which already own substantial stakes in the airline, to write down up to €565 million of the airline’s more than €800 million in outstanding debt. It also intends to cut as many as 3,000 jobs from Alitalia’s work force of about 14,000.
Until now, a restructuring of Alitalia’s debt has been the largest sticking point in a deal between the airlines. The banks’ reluctance to write off debt led Air France-KLM, which previously owned 25 percent of Alitalia, to bow out of the rescue package last year. The French-Dutch airline ultimately allowed its stake in Alitalia to shrink to 7 percent.Until now, a restructuring of Alitalia’s debt has been the largest sticking point in a deal between the airlines. The banks’ reluctance to write off debt led Air France-KLM, which previously owned 25 percent of Alitalia, to bow out of the rescue package last year. The French-Dutch airline ultimately allowed its stake in Alitalia to shrink to 7 percent.
Over the last five years, Alitalia, which is not publicly traded, has cut costs, renegotiated contracts with workers and suppliers, and shed assets in a desperate bid to keep flying. But Italy’s grinding economic crisis, high fuel costs and competition from low-cost rivals have overwhelmed the carrier’s turnaround efforts.Over the last five years, Alitalia, which is not publicly traded, has cut costs, renegotiated contracts with workers and suppliers, and shed assets in a desperate bid to keep flying. But Italy’s grinding economic crisis, high fuel costs and competition from low-cost rivals have overwhelmed the carrier’s turnaround efforts.
Last October the government of former Prime Minister Enrico Letta brokered a €500 million rescue that involved the purchase of a 12 percent stake in Alitalia by Italy’s state-owned post office. That transaction led to objections from some rival European airlines, which argued that the deal violated European Union restrictions on state aid to troubled companies.Last October the government of former Prime Minister Enrico Letta brokered a €500 million rescue that involved the purchase of a 12 percent stake in Alitalia by Italy’s state-owned post office. That transaction led to objections from some rival European airlines, which argued that the deal violated European Union restrictions on state aid to troubled companies.
The prospect of an investment by Etihad, which is wholly owned by the government of Abu Dhabi, raises similar concerns.The prospect of an investment by Etihad, which is wholly owned by the government of Abu Dhabi, raises similar concerns.
Lufthansa of Germany, for example, has argued that the purchase of shares in Alitalia “whether via European states or by state companies outside the E.U.” would constitute state aid and has urged the antitrust authorities in Brussels to block it.Lufthansa of Germany, for example, has argued that the purchase of shares in Alitalia “whether via European states or by state companies outside the E.U.” would constitute state aid and has urged the antitrust authorities in Brussels to block it.
Analysts say that 10-year-old Etihad is eager to add Alitalia to its stable of seven airlines in which it already owns minority stakes. The company has invested more than $1 billion in those carriers since first turning profitable in 2011.Analysts say that 10-year-old Etihad is eager to add Alitalia to its stable of seven airlines in which it already owns minority stakes. The company has invested more than $1 billion in those carriers since first turning profitable in 2011.
Etihad’s airline holdings — which include a 29 percent stake in Air Berlin, 20 percent of Virgin Australia and 24 percent of Jet Airways of India — have been a main driver of its growth, contributing a fifth of its $6.1 billion in revenue last year.Etihad’s airline holdings — which include a 29 percent stake in Air Berlin, 20 percent of Virgin Australia and 24 percent of Jet Airways of India — have been a main driver of its growth, contributing a fifth of its $6.1 billion in revenue last year.